Morgan Stanley's long-time Tesla bull just named Ferrari as the new top auto stock, saying its 'unmatched brand' makes it best positioned to handle macro uncertainty
Ferrari on Monday replaced Tesla as Morgan Stanley's top stock pick among automakers.
Ferrari investors are underestimating the luxury carmaker's EV opportunity.
Morgan Stanley sees 14% upside in the Ferrari stock, lifting its price target to $310 a share.
Morgan Stanley booted Tesla from its top spot among auto stocks in favor of Ferrari, saying the luxury vehicle company's attractiveness lies in its highly predictable business model and unmatched brand.
"We see Ferrari as the most defensive name in our coverage that avoids much of the EV hype and EV risk. An attractive risk/reward," equity analyst Adam Jonas wrote in a note from the bank on Monday.
The investment bank raised its price target on NYSE-listed Ferrari to $310 a share from $280. The move in the overweight-rated stock implied a 14% price increase from Friday's close at $271.45.
Shares of Ferrari were up 0.3% in Monday afternoon's session, trading above $271 a share. Tesla, whose shares have jumped about 58% this year, were down about 1.5% as the week kicked off.
"Ferrari ain't cheap but that's the price for security," said Morgan Stanley.
Ferrari's opportunity in the electric vehicle space is being underestimated, the bank said.
"Building on their learnings from hybrid and applying the racing DNA, we believe Ferrari can offer an EV that will be just as high in demand as what investors are used to from [an internal combustion engine]," said Jonas.
Morgan Stanley said in considering its relatively bearish view on auto fundamentals, Ferrari possesses a "highly predictable business model," as well as strong earnings visibility.
It also has the highest pricing power of any company its covers and a "near unmatched brand and market moat."
"In our view, buying a Ferrari today is not so much about "the sound of the engine" or the "performance" in and of itself. Rather, we think it is a totality of factors that drive customers to want the elements that a Ferrari possesses: scarcity, desirability, connotations of luxury and performance (stemming from Formula 1 racing pedigree), and exquisite Italian design and engineering."
Ferrari's brand and scarcity are driving unprecedented demand for its vehicles and the luxury automaker is able to leverage that with tight supply control.
"This makes Ferrari the most recession-proof and predictable auto company in our coverage," said Jonas.
The bank has a $220 price target on Tesla. The shares were trading around $195 on Monday.
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